the following shows a pricing game between Jetblue and delta. Each airline has a
ID: 1191842 • Letter: T
Question
the following shows a pricing game between Jetblue and delta. Each airline has a choice between engaging in a fare sale or not. the resulting profits of each airline are provided,where the first number in each payoff box equals JetBlue's profir and the second number is Delta's profit.
Jetblue, delta
fare sale no fare sale
what is the nash quilibrium of this game? (identify by circling the correct quadrant on the game matrix)
does this game resemble a prisoner's dilemma? explain
fare sale80,500 200,800 no fare sale 50,700 100,1200Explanation / Answer
The nash equilibrium for this game would be in the first quadrant, that is, at (200,800).
Consider the pay-off (80, 500), when Jet Blue decide to go for sale, it earns a profit of $80 and Delta earns a profit of $500. In comparision to no fare sale ($50 or $100), Jet Blue earns a higher profit in fare sale ($80 or $200), so it gives no reason for Jet Blue to deviate. But when Delta goes for fare sale it earns less profit ($500 or $700) than no fare sale ($800 or $1200) giving it an incentive to deviate and hence will stick to no fare sale earning a profit of $800. So equilibrium will establish at (200,800) profit giving no incentive to deviate to either of the firms.
Yes this game does resembles a prisoner's dilemma because each one wants to maximise the pay-offs. All the players want the best outcome for themselves and must take the actions of the others into account. In prisoner's dilemma the nash equilibrium was attained when both remained silenced, that is, both serves 2 years imprisonment, which was the best alternative. Similarly, in this case, the best outcome for individual firms is to maximise their profits. Jet Blue will not choose no fare sale and Delta will always choose the same.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.